ISM Non-Manufacturing: Second Month Of Slower Growth Than Expected

Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 53.0 percent, signaling slower growth than last month's 53.9 percent. This is the second consecutive month of slower growth. Today's number came in below the Investing.com forecast of 54.5, which was close to the 54.6 consensus posted by Briefing.com.

Here is the report summary: The NMI® registered 53 percent in December, 0.9 percentage point lower than November's reading of 53.9 percent. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 55.2 percent, which is 0.3 percentage point lower than the 55.5 percent reported in November, reflecting growth for the 53rd consecutive month, but at a slightly slower rate. The New Orders Index contracted after 52 consecutive months of growth for the first time since July 2009, when it registered 48 percent. The index decreased significantly by 7 percentage points to 49.4 percent, and the Employment Index increased 3.3 percentage points to 55.8 percent, indicating growth in employment for the 17th consecutive month and at a faster rate. The Prices Index increased 2.9 percentage points to 55.1 percent, indicating prices increased at a faster rate in December when compared to November. According to the NMI®, eight non-manufacturing industries reported growth in December. Despite the substantial decrease in the New Orders Index, respondents' comments predominately reflect that business conditions are stable.

Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

In my view, the more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 55.2 percent is a -0.3 decline from the previous month.

For a diffusion index, this can be an extremely volatile indicator. Thus I've added a six-month moving average to assist us in visualizing the trend, which has been relatively range bound for the past two years.

Theoretically, I believe, this indicator will become more useful as the timeframe of its coverage expands.

Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains my intention to keep this series on the radar.
Here is a table showing trend in the underlying components.

Here is a link to my coverage of ISM Manufacturing report released earlier this week.

Note: I use the FRED USRECP series (Peak through the Period preceding the Trough) to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The USRECP series thus flags December 2007 as the start of the recession and May 2009 as the last month of the recession, giving us the 18-month duration. The dot for the last recession in the charts above are thus for November 2007. The "Peak through the Period preceding the Trough" series is the one FRED uses in its monthly charts, as illustrated here.